5/07/2009 @ 6:00PM

Scott P. Sutherland: No. 4 For Bullish Calls

Best Buy Call:
TeleCommunication Systems
, January 2007 through March 2009

Top 2009 Buy:
Smith Micro Software

In January 2007, Scott P. Sutherland saw the big picture in little messages, as he put a “buy” on TeleCommunication Systems. Sutherland, managing director of equity research at Wedbush Morgan Securities in Los Angeles, saw this stock’s growth potential in text messaging, but he was also attracted to another part of its business–government contracts. TeleCommunication Systems’ juiciest of these deals, according to Sutherland, is its inclusion in a five-year, $5 billion master contract with the U.S. Army for satellite communications.

Revenues at Annapolis, Md., TeleCommunication Systems have gone from $125 million in fiscal 2006 to $220 million last year. “We see plenty of backlog in this government deal; it is an opportunity for them to deliver upside revenue,” says Sutherland. He’s also optimistic about the text-messaging business, given the growth in social sites such as Twitter, and he points out that TeleCommunication Systems’ largest civilian customer for its hardware and software is
Verizon Communications
, which has been very successful in text messaging.

While Sutherland still likes TeleCommunication Systems, he notes that its stock sells at a premium to its peer group and is unlikely to double or triple in price in the near future. He also likes Comverse Technology, despite its problems with backdating of options and long delays in filing financial statements. “It is a big company, and they got great products and the stock is cheap,” says Sutherland, “but they really need to file and get the credit they deserve.”

Sutherland’s top pick for the coming 12 months is
Smith Micro Software
, a company that provides the software to securely connect computers to wireless phone networks. He sees several positives in the stock: The company is gaining market share; acquiring competitors; and winning new deals, such as a recent WiMax agreement with
Motorola
.

Another reason why Sutherland is bullish on Smith Micro is that he sees a strong secular growth trend in broadband networks. “People are going to connect their laptops to them,” he says. Management is confident it can get 12% to 17% organic revenue growth this year. Not many companies are going to over 10% this year.”